ATTRACTIVE FOR EUROPE

Of all the resort towns on Lake Como, Cernobbio has a reputation for being one of the most exquisite and glamorous. It is known not only for the scenery but also for historical houses, which have previously belonged to various famous characters. This time it was not the tourist fame of Cernobbio but the 48th International Forum traditionally held in September on Lake Como that drew the people here.

Similar to WEF held annually in Davos, the Italian forum themed as Intelligence on the World, Europe and Italy and Today's and Tomorrow's Scenarios for Competitive Strategy has brought together heads of state, ministers, Nobel Prize winners and businessmen to discuss the urgent challenges facing the global economy and society.

This year's event took place in a particularly challenging environment: the political crisis in Italy, deepening energy crisis in Europe, Russia's ongoing military operation in Ukraine, soaring energy prices, the threat of a global food crisis...

All these issues were on the agenda of the three-day forum (September 2-4). The main guest of the forum was the Azerbaijani President Ilham Aliyev, who was on official visit to Italy. In different years, the forum was attended by Prince Albert II, Kofi Annan, Joe Biden, Richard Cheney, Recep Tayyip Erdogan, Queen Rania al-Abdullah and other prominent statesmen and politicians.

All roads lead to Azerbaijan!

In general, the Azerbaijani leader's visit to Italy was very productive. He attended the opening ceremony of a new building for the Azerbaijani embassy in Rome, exchanged agreements between the Azerbaijani ADA University and five leading Italian universities, held meetings with the Italian leadership, including with President Sergio Mattarella and Prime Minister Mario Draghi, made a speech at the Cernobbio Forum and gave interviews.

The key issue of the meetings, as well as the main motif of Aliyev's visit to Italy, was the discussion of energy cooperation.

Mr. Aliyev noted that Italy was Azerbaijan's number one trade partner. Last year, trade turnover between the two countries reached $9.6b and $11b in the first seven months of the year. Italy has been the main importer of Azerbaijani oil and gas (since December 31, 2020). So, hydrocarbons take the leading place on the list of Azerbaijani exports to Italy.

"The 3,500-kilometre energy bridge connecting Baku to the Italian coast is a bridge of energy security. It is not only about Italy. I am sure that Italy will become the country transporting Azerbaijan's hydrocarbon resources to other places in Europe," Mr. Aliyev believes.

Remarkably, Mario Draghi, President of the Italian Council of Ministers, in his meeting with Ilham Aliyev, noted Azerbaijan's important role in ensuring energy security both for his country and the European Union as a whole.

Italian authorities have already turned to Azerbaijan for additional gas as part of their measures to diminish dependence on Russian gas.

While the Russian gas covered over 40%, or 29 billion cubic metres (bcm) annually, of Italian gas imports, this figure dropped to 25% at the beginning of the year. Italy is now trying to diversify its energy supplies. In April, Italy and Algeria signed an agreement to increase gas supplies in 2023-2024 by another 9bcm per year hitting the 19.9bcm-mark, which would exceed supplies from Russia.

Incidentally, a year and a half following the commercial operations of TAP (Trans-Anatolian Pipeline), Azerbaijan has delivered 13.5bcm of gas to Europe, of which 11.7bcm to Italy.

"This year we are planning to increase the volume of our deliveries to the Italian market to 10bcm. Our total exports will exceed 22bcm, and there is huge potential to increase it," President Aliyev said.

In addition to the energy sector, Ilham Aliyev and Mario Draghi also discussed cooperation in economy, science, education and other areas. They also talked about the active participation of Italian companies in the restoration and reconstruction works carried out in the liberated Azerbaijani territories.

Mr. Aliyev also addressed the Memorandum of Understanding on Strategic Partnership between Azerbaijan and the EU in the energy sector to double gas supplies to the EU by 2027.

"This is a very important step to ensure the further development of our energy resources. I call it a roadmap for our future activities. We plan to double our natural gas exports to Europe. I am confident that we will achieve this. This requires some important steps, such as political decisions, technical measures, and, of course, investments, since the capacity of different segments of the Southern Gas Corridor is different," said Mr. Ilham Aliyev.

Necessary doubling

"We need close cooperation and coordination to meet the growing demands. We have so far initiated an official dialogue between the EU and Azerbaijan on energy," said the Azerbaijani President.

Specifically it is planned to expand the annual throughput capacity of the TANAP pipeline from the current 16bcm to 32bcm and to increase the capacity of the TAP pipeline from at least 10bcm to 20bcm. "This requires additional funding. We, as a country and as an investor, are ready for this. However, we expect the participation of other members of our team also," I. Aliyev always says.

In addition, according to the Azerbaijani leader's keynote address made in Cernobbio, since the start of the Russian-Ukrainian war Azerbaijan has received official requests from more than 10 countries to either increase the volume or start exporting gas. This list also includes countries that already receive Azerbaijani gas: Turkey, Georgia, Italy, Bulgaria and others.

"We see that as a result of the Russian-Ukrainian war, the issue of natural gas has become one of the top issues on the European agenda. There are discussions related to interconnectors, one of which, the Greece-Bulgaria interconnector, is close to being commissioned. There are other similar projects. Under the Ionian-Adriatic Pipeline (IAP) project, Azerbaijani gas will be supplied to three Balkan countries," Mr. Aliyev added.

If we look at the list of countries involved in the construction of the IAP pipeline, it becomes clear which states the Azerbaijani leader has in mind: Croatia, Albania and Montenegro. It is quite natural, as all these Western Balkan states have long had an eye on the Azerbaijani gas and the Southern Gas Corridor (SGC) project and have taken an active part in meetings of the consultative council for the Southern Gas Corridor.

As for doubling exports to Europe, Mr. Aliyev admitted that this was not an easy issue. There is a lot of work to be done, while the European partners should express their determination. It is necessary to conclude agreements between shareholders to invest and expand the technical capacity of both the TAP pipeline and the other components of the SGC.

"It is quite a big deal. Please note that our stake in TAP is only 20%. Other shareholders also need to come to an agreement so that we can plan an investment project together. This should be done soon, because we have agreed with the European Commission to double gas exports from Azerbaijan to the EU to 20bcm by 2027. This won’t be possible without expanding the TAP. That’s why we should first do this and then start contract negotiations," explained President Aliyev.

The EU seems to have listened to the calls of Azerbaijani authorities and decided to speed up the issue of doubling the capacity of the European TAP pipeline.

"At the end of this year or early next year, TAP plans to launch the final phase of its market trials, in which shippers will request additional long-term pipeline capacity from TAP AG. This capacity request process may last a couple of months at the most. If there is sufficient demand for capacity, we will start expanding [the pipeline]," TAP Managing Director Luca Schieppati said at the international Gastech conference in Milan.

He added that the TAP expansion could be phased in, with additional gas coming from several Azerbaijani fields.

"In 36 months we will be able to provide the first additional capacity and in 60 months we can already double the capacity," says Mr. Schieppati.

At the same time, the head of TAP AG hinted that the project has ambitious plans for its development. For example, the company is also doing some prep works on the infrastructure for transporting hydrogen, after the feasibility study for the project gave a positive result.

"The industry is currently focusing on the issue of hydrogen to achieve carbon neutrality. At TAP, we have embraced this idea from the very beginning. The initial study we conducted in 2021 confirmed that TAP can transport hydrogen," notes L. Schieppati.

The next step will be to check the material and weld the pipeline to make sure it is compatible with hydrogen transport.

Lining up for gas

Meanwhile, the number of countries that want Azerbaijani gas is growing exponentially. Moldova has decided to join the list of potential buyers. In fact, at the beginning of summer the Moldovan authorities openly declared their intention to import gas from sources alternative to Russia, particularly from Azerbaijan. To discuss this issue, Moldovan President Maia Sandu sent Deputy Prime Minister Andrei Spina to Baku in June.

Moldovan authorities are looking for new suppliers because of the high price of Russian gas. A five-year contract between Moldovagaz and Gazprom has been effective since November 1, 2021. After the document was signed, tariffs for Moldovan consumers were brought in line with its terms, increasing 2.4 times. From January 1, tariffs were increased by another 40%, from June 1 by 30% and from August 15 by another 25%.

At the same time, the price of gas supplied by Gazprom to Moldova is increasing every month. While Chisinau paid $450 per thousand cubic metres of the Russian gas in November 2021, in August and September 2022 the price jumped to $1,458.5, and $1,883, respectively. Rising prices create problems in terms of timely payments and consequently increase the risks of suspension of supplies.

"There is a risk that Gazprom cuts off gas supplies. Even if they do not, the ongoing trend shows that gas prices will become unaffordable," Mrs. Sandu told radio station Vocea Basarabiei.

She urged the population to reduce gas consumption as much as possible during the forthcoming winter season. At the same time, the deputy prime minister and minister of infrastructure and regional development, Andrei Spinu, said that the country had already started negotiations on gas supplies with Azerbaijan and Romania.

"Moldovans have a saying: don't put your eggs in one basket. After 30 years of independence we are still dependent on one source of energy. This situation must be changed, which is what we are trying to do now," Spinu lamented.

At the same time, referring to the supply conditions from Azerbaijan and Romania, he explained that "operators from both countries offer good gas prices, without putting any conditions to Moldova".

"We would like to sign a long-term contract for the next 10-15 years. There are many nuances while discussions are on the way. However, it is not known when gas supply contracts can be signed. We would like to see them as soon as possible. There are no demands and conditions. And again, we have never agreed to conditions, especially political ones," Moldovan deputy prime minister said.

According to the Moldovan authorities, the gas price formula the government is discussing with Azerbaijan is more favourable in the summer than the one the previous government headed by former Prime Minister Ion Chicu approved with Gazprom.

Exchanging gas for electricity

There are also proposals made by Bulgaria regarding the purchase of additional volumes of Azerbaijani gas. Bulgarian authorities have delegated the Minister of Economy and Industry Nikolo Stoyanov to Baku to resume talks with Azerbaijan on the issue.

Following the meetings in Baku, Stoyanov said that Bulgaria was not expecting additional volumes of gas from Azerbaijan until 2025 at the earliest. Nevertheless, the minister secured a promise from Azerbaijan to do everything possible to guarantee these volumes in the long term, given Bulgaria's priority for Azerbaijan.

"Bulgaria is interested in increasing deliveries from Azerbaijan after the expansion of the Southern Gas Corridor. We understand that additional deliveries through it are not possible before 2025, but Bulgaria should start laying the foundations for the real diversification of supplies," Mr. Stoyanov said.

Sofia is expecting a return visit by Azerbaijan's energy minister, Parviz Shahbazov, in October to continue talks on new areas of mutual partnership, which also include cooperation in the field of green energy.

Meanwhile, in return for Baku's commitment to supply additional amounts of gas, Sofia has offered its guarantees for the supply of electricity to Azerbaijan.

"If Bulgaria can guarantee the required power volumes, Azerbaijan could divert the surplus gas to Bulgaria. This is another opportunity to diversify Bulgaria's energy sector, especially before the upcoming winter season," Mr. Stoyanov said.

We yet to know how interesting Azerbaijan finds this idea. But with Azerbaijan promoting the initiative of exporting electricity to Europe itself, Baku is unlikely to seriously consider the reverse option. Although it should not rule out this possibility, as final decisions are determined primarily by the price parameters that the parties will offer each other.